Thursday, December 20, 2007

F+W Shutters Multiple Hobbyist MagazinesPublisher shuts down five titles, lays off as many as 40 employees. by Jason Fell

F+W Publications has shuttered five magazines under its Wisconsin-based Krause Publications division, FOLIO: has learned. The titles to be closed include Antiques and Collectibles Journal, Comics & Games Retailer, Toy Cars & Models, Toy Shop and Vintage Motorcycles, the publisher confirmed.

The publisher made the announcement to employees earlier this month in an internal memo. As many as 40 employees have been laid off, the source tells FOLIO:, although another source put the number closer to 15. F+W declined to confirm the number of layoffs.

"We take into consideration the marketplace we serve and the opportunities available for each of our magazine titles. After much analysis and deliberation, we have determined to cease publication of these underperforming tittles," chairman and CEO David Steward stated in an e-mail to FOLIO:.

"We are working to realign our business model and structure to meet the changing demands of the marketplace," F+W magazine division president David Blansfield said in the e-mail. Krause will continue to publish its other hobbyist titles, including Antique Trader and Old Cars Weekly.

The federal fraud investigation of two of the Chicago Tribune Co.'s newspapers has finally (almost) come to an end. It was announced yesterday that the Chicago Tribune Co. will pay $15 million to settle the federal investigation into fraudulent circulation practices at Newsday and the New York edition of Spanish-language daily Hoy that occurred between 2001 and 2004.

The newspapers have accepted responsibility for the fraudulent conduct of their employees, have cooperated with the government in the investigation and have already paid about $83 million in restitution to their advertisers. In addition, they have implemented "remedial management and internal auditing reforms."

Newsday publisher, president and CEO Timothy Knight said, "Over the past few years, we have made comprehensive changes in controls, systems, customer relations, policies and our management team to prevent this from occurring again."

Nine people have pleaded guilty to participating in the scheme, according to the Associated Press, including employees ranging from vice presidents to home delivery and circulation managers. All are awaiting sentencing.

"25 years ago, for magazines making a rate base claim, almost 60 percent missed their rate base. . . Now only about 20 percent miss their rate base, but more titles are not making a specific rate base claim (well over 50 percent of ABC membership)."

"Back in 1986," Capell writes, "Publishers Clearing House and American Family Publishers delivered over 25 percent of all industry new subscription sales." By 1995, their volumes were off 70 percent. Now, AFP is gone, along with other direct mail agents like Magazine Buyers Service, United Subscription Service, Magazine Marketplace, Great American Magazines. Worldwide and Perfect School Plan are also defunct.

And then the kicker: "In the very first issue of CCR, after analyzing the Seven Sister magazine category, we reached the following conclusion: 'The Seven Sisters represent a classic case history of the proverbial publishing treadmill. As ad pages increase, management pushes circulation well beyond its natural level.

'Then as ad page growth inevitably levels off, publishers are left with high circulation acquisition and maintenance costs no longer justified by ad revenues that are static at best. Magazine profits begin to slip. Circ directors are put in a no-win situation, as they are pressed to deliver inflated circ levels at ever increasing subscription and newsstand prices.'"Adds Capell, "Twenty-five years later, the problem is still the same!"

The Postal Service released volume data for the fourth fiscal quarter of 2007 (July through September), and the numbers represent the first quarter to reflect the rate increase. According to David Straus of Thompson Coburn, legal counsel to the ABM, "It is not a pretty picture."

Here are some of the main data points:

* Regular rate periodicals volume is down 2.5 percent from the same period last year, and within that category, classroom publications volume dropped 11.8 percent vs. the fourth quarter of last year;

Straus reports that because the new Flats Sequencing System will soon be deployed, if flat volumes continue to decrease, the cost per piece for the Postal Service will go up. He adds, "I think that we will see such continuing declines, especially in Standard mail, as direct marketers modify their mail shape and programs in response to the significant change in rate design that adversely affects flats."

Sunday, December 16, 2007

As 2007 Draws to a Close: Where is the Business Heading?By John Harringtonhttp://www.nscopy.com/

Editor's Note: Last week, I participated in a Newsstand Forum sponsored by the Magazine Publishers of America (MPA). The following is an overview of my remarks and some of the discussions that followed. The panel moderator was Jerry Lynch (IPDA), and the other members were Tom Masterson (Hachette Filipacchi Media U.S.), Lindsay Valk (Hearst Magazines), and Jeremy Koch (MPA).

2007 began with a continuation of trends that have characterized newsstand for several years; low levels of unit and dollar growth, and a small, but encouraging improvement in retail sell-through figures. A very preliminary look at results for the third quarter finds a continuation of both trends. Retail dollar sales appear to have improved 1.6%, compared to the same period in 2006, while units were up 1.3%. If this continues for the remainder of the year, it will mark three straight years of moderate unit and dollar growth for magazine newsstand sales. Following nearly a decade of declining unit sales, this level of performance is encouraging.

More notable is that the 1.3% unit sales increase in the third quarter was accompanied by a reduction in retail draw of 5.1%, which translates into a sales efficiency of nearly 42%. Although that figure needs to be viewed very cautiously (the first-half figure was 38.4%), it would appear to indicate that the efficiency initiatives of most wholesalers and several national distributors are beginning to pay off. According Harrington Associates' annual study, The Magazine Retail Sales Experience, the industry efficiency figure has not been above 40% since 1996. In any event, the magazine distribution channel's conventional wisdom of "Cut the draw, cut the sale," seems ready to become history.

Positives: So, entering 2008, newsstand sales are coming off three years of unit growth, accompanied by improving efficiencies, both trends that contrast sharply with the preceding decade. Added to that is a retail atmosphere that has been generally friendly to cover price increases (Harrington Associate's regular review finds nearly a third of price increases are accompanied by unit growth; and last week The New Single Copy reported that Bauer Publishing appeared to be doing well with its 50% price hikes on some of its high-volume celebrity titles). A recent history of unit growth, improving efficiencies, and an ability to raise prices! It's not the worst way to begin a new year.

Challenges: On the challenge side, the economics of the channel remain fragile. Three of the four large wholesaler groups that represent 90%-plus of the market claim to be losing money, and the fourth says its profit margins are slim. Publishers are competing in a soft advertising market, and the subscription side of circulation has been struggling since late in the 1990's.

Scan-based-trading (SBT), which has been on retailers' agendas for nearly a decade, is an issue that the magazine distribution channel will hear a lot about in 2008. For a variety of reasons, wholesalers are now involved SBT relationships with retail chains, who are estimated to represent more than 25% of magazine sales. Several other chains want to do the same; the number could expand significantly. To date, these programs have been developed strictly between wholesalers and retailers. Yet, the long-term impact will be felt, substantially if not equally, by publishers and national distributors. Most participants agree that for SBT to progress in a way that is beneficial to the channel, it must be an industry-wide initiative. The issues inherent in SBT - among them shrink and the responsibility for it, the impact of inventory costs shifts, and auditing - are profound. Negotiating them, and a host of peripheral matters, will strain a channel already characterized by tensions at every level. Moving forward will require accommodations by all of the trading partners: publishers, national distributors, wholesalers, and retailers.

Moving Forward: The recent positive history of unit growth, improving efficiencies, and a price-friendly market may help ease the resolution of the above challenges.

Publishers and national distributors acknowledge that the recent wholesaler efficiency drives are more productive and effective than previous efforts, and the suppliers are working more closely with them as a result. Still, they caution against moves that may not take into consideration unique publisher needs, particularly advertising rate base issues. As one publisher pointed out, the economic models of publishers, national distributors, wholesalers, and retailers do not always match. Granted, there will never be a full match of economic incentives, but it was also noted that the distribution channel's financial structure has only been marginally modified over the past dozen years. In 1995, there were around 300 wholesalers and they operated in limited markets, characterized by retail density. There were many fewer titles, some of which sold over two million copies per-issue, and their efficiencies were in the 60% range. No single title sell that many copies today and only one or two have that kind of sell-through. Discussion seemed to indicate there is more awareness of these disparities, and sympathy to the problems they create.

During the forum discussions, there was considerable reference to the "Sustainability" initiative of Wal-Mart, the largest retail chain. At its direction, publisher, national distributor, and wholesaler executives have met twice in the last month in the retailer's Arkansas headquarters to address a list of issues, selected by the chain. Overall, Wal-Mart said the main goals of "Sustainability" are 1) a sales increase of 5%; 2) improving efficiencies to 50%; and 3) achieving waste reductions throughout the channel. A national distributor executive said that other retailers can be expected to follow Wal-Mart's lead. The fact is, the "demands" of major retailers to focus attention on these issues may be the push that renders them achievable.

There seems to a broad sense that 2008 will be a year of significant change. If the entire channel, including retailers, operates as partners, the change has the potential to be positive and long lasting.

One possible impediment to that process was raised at the forum by Mike Sullivan, president and CEO of Comag Marketing Group (CMG). Responding to the topic of a lack of significant progress, despite much debate, Sullivan said, "'Ego-nomic' business decisions continue to prevail over 'eco-nomic' business decisions."

Wednesday, December 5, 2007

BIG BROTHER IS WATCHING--WELL, JUST Mediamark Research and Intelligence, actually. The magazine audience measurement firm is partnering with DJG Marketing's Waiting Room Subscription Services to put radio frequency identification (RFID) chips in magazines in waiting rooms to determine just how many customers actually read them.

MRI has been testing RFID technology in-house for over a year, but the DJG-WRSS partnership marks the first external study using MRI's Passive Print Monitoring System. RFID microchips are small, passive transponders remotely powered by radio frequencies, allowing detection and measurement of movement.

The study seeks to determine whether RFID tech can accurately measure time spent with a specific magazine issue and the number of individual readings. It may even allow MRI to measure exposure to a specific ad page in the magazine. DJG wants to recruit publisher support for the test.

The new measurement initiative may help resolve a controversial issue in magazine ad sales: Should free or discounted copies distributed in public places count as quality circulation? Often dismissed as "junk circ" used to inflate publishers' figures, proponents argue that these magazines have value that can be measured in terms of reach and frequency, akin to booming place-based video media.

In this vein, Marc Passarelli, president of WRSS and chief operating officer of DJG Marketing, remarked: "Public place distribution is an important source of targeted readership generation for magazines and provides a defined competitive environment for sampling multiple titles."

In August 2006, Time Inc. and Mediaedge:cia released a study which found that over 80% of waiting-room readers act on ad or editorial content they see in magazines there. The Internet study tracked readership of six different magazines in a sample population of about 5,000 people, focusing on Entertainment Weekly, In Style, Sports Illustrated, Fortune, Parenting and People. The study also found 85% said they "didn't mind waiting if magazines were available," while 97% thought "waiting rooms should provide things to read while you wait."

Other big players have also experimented with new electronic measurement techniques for magazine readership. In June 2006, Time Inc. Jane Bailey, vice president of corporate marketing information for Time, Inc., and Roberta McConochie, director of PPM client relations for Arbitron, reported the results of a joint study using PPM technology to measure magazine readership. Based on the physical dynamics of magazine reading, the studies revealed large increases in both the number of interactions and overall time spent reading magazines, compared to self-recorded diaries.

Monday, December 3, 2007

According to the latest report from Mediamark Research Intelligence (MRI), each copy of People is read by a median of 11.34 readers. With an audience size of 42.4 million and a circulation of 3.7 million, People dominates in readership against its top four competitors: Star ranks second in terms of readers per copy (6.95); Us Weekly is close by with 6.74 readers per copy; Entertainment Weekly (5.79) and In Touch (5.65) round out the category.

Surprisingly, readers of Esquire-which distinguishes itself in its online media kit by touting "while other men's magazines are written for highly aspirational readers, Esquire is geared towards men who have arrived"-have the lowest median household income for adults ($53,783) among five of its top competitors. (To be fair, Esquire's readership has seen a marked increase in affluence since 2002, when it had a median income of $42,602). Men's Journal leads the pack with a median of $77,063, followed by Men's Health ($76,865), GQ ($68,746), Men's Fitness ($68,486) and Maxim ($65,614). Esquire's readers are also the oldest of the group, with a median age of 43.9 years. Maxim is on the low end, with a median age of 28.4 for adults.

Male vs. Female

In terms of sex, Esquire appeals to the highest percentage of women (33.8 percent) while Maxim-top in both circ and audience size-has a female readership of 23 percent.

As another example, 30 percent of Scientific American's readers are female versus Popular Science's 14.9 percent, while PopSci has 3 million more readers than SciAm, with a circ of 1.3 million versus SciAm's 574,000.

Women's magazines tend to have less crossover. Just 6.5 percent of Glamour magazine readers are male, versus Vogue's 13 percent, while Glamour's circ and audience size remains higher by one and two million, respectively. In terms of readership, Glamour (12.5 million) and Vogue (10.8 million) are both higher than Redbook (9.8 million) and Seventeen (8.7 million). Allure (5.9 million) has a leg up on Marie Claire (3.5 million) in the readership category.

In the battle over the sports reader, Sports Illustrated's audience of nearly 21 million tops ESPN the Magazine's 13.7 million. The age gap between readers has grown larger since last year, as the median age of ESPN readers has dropped from 33.1 to 31.8 while the median age of SI readers has climbed slightly from 38.4 to 39.1.

This year's MRI results also support the point made by airline magazine marketers that in-flights have a notably affluent readership. Comparing the six top in-flight magazines, the median yearly household income for adult readers ranges from United's Hemispheres ($123,234) to Continental ($88,831).

Martha vs. Oprah

The affluence of Oprah and Martha Stewart's readers is nearly identical, with median income separated by less than $1,000 (Martha's $68,914 versus Oprah's $68,294), but Oprah continues to prevail in audience size. O, The Oprah Magazine's audience is at more than 16 million-a four percent increase from last year's results-versus Martha's almost 12 million-a one percent increase.

Tuesday, November 27, 2007

CONSUMER MAGAZINE FULFILLMENT:WHERE IT IS AND WHERE IT'S GOINGBy Steve Strickman

The past few years have seen major changes in the consumer magazine fulfillment industry. These changes, especially industry consolidation, have reduced the number of major vendors and the number of alternatives available to publishers. One additional consequence may be a reduction in the competitive intensity among the remaining vendors. Since the start of 2007 there have also been changes in the leadership of two of the larger fulfillment vendors and one of the smaller ones.

Much has been written about the challenges faced by traditional print magazines and newspapers. Fueled by internet growth and new giants such as Google and Yahoo, digital and on-line products are becoming more and more important. Fulfillment vendors are now facing the need to diversify their mix of services to meet the changing demands of their clients and prospects. The future health and growth of these companies may be determined by how successful they are in meeting this diversification challenge.

Mergers and acquisitions, both in the fulfillment industry and in publishing, have reduced historical stability and have created more uncertainty. There are now only three remaining major surviving vendors, down from five only four years ago. Two of the three survivors are owned by media companies. Also, one of the smaller vendors in California closed down a few years ago.

Not all of the news is discouraging. At least one new small vendor has entered the market and others are surviving and may even be prospering.

Two of the remaining large "in-house" fulfillment operations are also joining other major publishers in outsourcing. TV Guide recently converted their fulfillment to CDS and Guideposts is scheduled to do the same in early in 2008. As recently as ten or twelve years ago, major publishers such as Newsweek, Business Week, Meredith, National Geographic and Southern Living maintained in house operations. They are now all gone with only one or two others still surviving. There are, of course, a number of small to medium size publishers who maintain in-house operations using licensed fulfillment systems supplied by companies such as Advantage Computing Systems (ACS).

These recent industry changes, and their impact on alternatives available to publishers, are probably the most the most significant in last 35 years. This article attempts to describe the current situation and to look ahead to what may happen in the future. Recent Events

Kable

The most recent significant industry event, prior to this year, occurred in 2003 when Kable Fulfillment Services acquired the EDS subscription fulfillment business in Louisville, Colorado (formerly Neodata). Early in 2007 Kable completed the acquisition of Palm Coast Data (PCD), creating the second largest fulfillment services company.

Kable Fulfillment Services operates in four separate facilities: Louisville, Colorado; Palm Coast, Florida; Mount Morris, Illinois; and Marion, Ohio. They also operate a number of different fulfillment systems. The new management, mostly comprised of senior managers from Palm Coast Data led by John Meneough, the former CEO of PCD, is faced with major integration challenges. They must deal with integrating people, operations and systems, while keeping hundreds of clients happy, and at the same time achieving the benefits of cost reduction through consolidation and elimination of duplicate or overlapping functions. This is a daunting task.

During the summer of 2007 they announced cutbacks affecting 75 employees in three of the four facilities (excluding Florida). More recently they announced that the Marion, Ohio facility will shut down by September, 2008 with the work transferred to their other facilities. They are also in the process planning the conversion of clients who are on NPS, the old Neodata system, to the Palm Coast fulfillment system while also converting a major addition, the Time for Media publications recently acquired by Bonnier.

The magnitude of these activities could either enhance their relationship with existing clients, if the service levels are maintained or improved, or could damage these relationships if service levels deteriorate in any significant way. It is clear that many Kable clients are watching closely.

CDS

CDS, a unit of the Hearst Corporation, is also undergoing major changes. Malcolm Netburn was hired as the new Chairman and CEO of CDS in February. The former CDS President left the company a few months later and CDS recently announce a major reorganization. They seem to be taking the lead in implementing a new long term direction that depends on a more diversified mix of services oriented to the changing business models of media companies with a stated focus on the expanded use of technology to meet these new requirements. CDS has exhibited a high energy level during this period of change and is investing in a number of enhanced services.

As part of its change in direction, CDS has changed its name to CDS Global. This name change is more reflective of the international scope of CDS activities. CDS acquired Tower Publishing Services in the United Kingdom a number of years ago followed by the acquisition of Indas, a Canadian company. A new Australian business unit was created within the past two years.

In addition to the recent conversion of TV Guide and the pending conversion of Guideposts, CDS has shown new aggressiveness in pursuing other potential new business. This has helped to sustain a competitive environment, at least temporarily, despite the reduction in the number of competitors.

One new aspect of the CDS reorganization is a temporary modification of the independence of CDS from the Hearst Magazine Division. CDS' IT organization is temporarily reporting directly to an executive at the parent company, which raises the possibility of a conflict of priorities. Ever since being acquired by Hearst 25 years ago, CDS has made an extra effort to avoid the perception of being tied too closely to Hearst Magazines, and this latest step has changed that practice. This closer affiliation could, however, provide CDS with additional resources that enable them to add value for their clients.

Time Customer Service

Time Customer Service (TCS), a Time business unit in Tampa, Florida, has made few major changes in its senior management. Tim Adams has been the President of TCS for many years, and seems committed to programs of growth and diversification. TCS has recently demonstrated a new willingness to compete with the other major fulfillment service providers. Given their size and resources, they could have a major impact on the competitive landscape if they should decide to seek new clients.

TCS now offers two reporting products: Circulation Manager (for report generation) and TPOT (for web based report distribution) that some consider to be the best in the industry. These packages were developed by Time, Inc in New York and demonstrate the advantage of a close relationship with the parent company with access to larger resources made available by the parent.

Others

Among the smaller fulfillment service companies, the Strategic Fulfillment Group of Big Sandy, Texas, (SFG) also made a change at the top management level. Tony Pytlak was brought in within the past year as the new President and COO. Shirrel Rhoades, a respected veteran in the publishing and consumer marketing industries, and a long time consultant to the parent company, DRG, has also been active in supporting SFG's development. They could offer a serious alternative for publishers in the future.

ARGI, another smaller services company, has also had recent changes in senior management. They are positioned as a company that provides database marketing and web services in addition to subscription fulfillment.

There are several other smaller companies in California, including ESP Computer Services and Publisher's Creative Systems (PCS), each of whom has their own niche base of clients. Smaller east coast companies include Fulco and Cambey & West. Changes at these companies, if any, have not been publicized.

Finally, a new player has come upon the fulfillment scene. National Community Services (NCS), an active school plan and field agency for many years, based in Memphis, Tennessee, is offering subscription fulfillment services for smaller circulation publishers. They now have a small, but visible client base, and are seeking growth. They have demonstrated their commitment to the business by recently hiring Glyn Standen, formerly of Kable Fulfillment Services, to lead their fulfillment sales and marketing effort. They are being guided by Jeff Capwell and his associates, a group that has a track record of success in circulation and subscription marketing. NCS could also provide another fulfillment alternative for their niche segment of the consumer magazine market.

Recent Service EnhancementsThe major service companies have been making an effort to add new services and offer enhancements to existing services. This was especially true of Palm Coast Data in the period preceding their acquisition by Kable. These service improvements are now being offered by the merged companies.

With its new energy and direction, CDS also is enhancing its services, but some of these enhancements must yet be implemented.

TCS has also been investing in such enhancements, which have been available to their clients for some time. They have been relatively quiet about these improvements - presumably because they have chosen to avoid the head to head competition that occurs elsewhere in the industry.

Palm Coast Data (now Kable) has implemented two major initiatives: a new reporting platform called PCD Inform, and a new database facility called PCD Insight, which is based on the use of advanced database software used by the major database marketing companies.

PCD Inform provides the user with flexibility in defining the content and format of reports and export files. It has many features that make it easy to use. The most unique characteristic of the system is the ability to add and maintain cost data so that full P&L reporting can be utilized.

PCD Insight offers complete count and selection facilities with very fast response times. Kable provides the capability needed to update the database from the fulfillment database. The tool is used for list selections for clients that have their list rental processing done by Kable. It also provides marketing database capabilities, including data overlays, for analysis and target marketing.

Kable clients using the Palm Coast Data system can take advantage of PCD Inform and PCD Insight. Those clients using the NPS system and the K-Data system (the "old" Kable systems) may be required to use other tools.

CDS is also developing a new reporting platform based developments at their UK company. They are revamping the UK system so as to meet U.S. requirements, but the date this new system will be available is uncertain.

CDS' major initiative appears to be in the expansion of its on-line and internet capabilities. This component of their business is growing rapidly and they have joined forces with the new media group at Hearst to accelerate their development efforts. They are currently implementing a new on-line marketing tool called Circules, which was developed at Hearst, for their clients. It seems that CDS intends to use these enhanced internet facilities as a competitive weapon that will also support their efforts to support new media business models.

They are also expanding their use of analytical software that "learns" based on transaction history to help target specific offers to customers on the telephone and on-line. CDS calls this the "SMART" system.

CDS has also upgraded their product fulfillment services over the past year or two. For those clients who have the need, CDS now offers high level services covering order processing, customer service, shopping carts, warehousing and pick and pack. Their product fulfillment system, SERV pf, is interactive, utilizes a relational database, and interfaces with strong internet services. The only major task they have not yet accomplished is to integrate the product customer database with the subscriber database to provide a truly integrated capability.

TCS offers a higher level of postal and distribution support than is available from the two major competitors. They also offer the advanced reporting tools mentioned earlier in this article. As with many industry reporting tools, power usage of the Circulation Management reporting system probably requires extra client training.

One of TCS' most unique services is an itegrated print management system called "OMS". OMS is geared toward larger circulation magazines with multiple editions. Among other functions, the system provides for the "qualification" of geographic and demographic editions, with the ability to prioritize characteristics and to generate edition counts prior to actual selection of main file labels. For publications with this need, OMS offers a unique ability to plan and control edition print orders and counts.

TCS also has a very pro-active Marketing Services group that takes responsibility for much of the workload that, with other fulfillment vendors, must normally be performed by client Circulation staffs.

Other Alternatives

Larger circulation consumer magazine publishers who are seeking more than basic fulfillment services will generally limit their focus to the three large vendors. This could change in the future if one or more of the smaller companies makes the investment necessary to create the depth and breadth of services sought by this major segment of the market.

Smaller publishers who are concerned about fundamentals - i.e., fast and accurate cashiering and transaction processing, telephone and on-line customer service, audit support, adequate reporting, and reliable lettershop services, have a much wider choice. SFG would be a leading candidate for these publishers. They manage full service operations in one location in Big Sandy, Texas, including all fulfillment operational activities, telephone customer service, lettershop and full product fulfillment. Under their new President, they have exhibited a strong desire for growth and are in the process of expanding their capabilities.

Other good choices could be NCS (the new entry to the business), ESP, PCS, and, perhaps, some of the other smaller companies.

The biggest advantage a publisher has in doing business with one of the smaller companies could be to achieve a higher level of attention and support. Smaller clients sometimes suffer from what they perceive as a lack of attention from the large vendors, especially in account management and from senior management.

In assessing these alternative vendors, publishers should consider cost factors other than fulfillment service prices. For example, the larger service companies have higher levels of automation and can perform image processing and, ultimately archiving of the transaction images. This is harder for the smaller companies to justify. More important may be the ability to obtain larger postal discounts for clients. For standard class these discounts are dependent on the volumes of co-mingled mailings, and the larger companies can normally achieve high discount levels without using a pre-sort house.

The Future?

Where is the consumer magazine fulfillment industry going from here? The likelihood is that there will be many more changes coming. It is almost certain that all of the fulfillment companies will add capabilities to increase their support of multi-media businesses. This will be essential if these companies are to survive over the long term.

Most immediately, we should expect systems to be modified as necessary to support fulfillment of electronic publications, including content delivery. This will also include delivery of on-demand content, with or without gatekeeping and with or without additional collection of payments. These facilities should be relatively easy to implement, depending on the age and architecture of the underlying fulfillment system.

Batch update systems are already obsolete and may, in the near future, be unacceptable. As the world evolves to more of an on-line mode, it will be very important to process in a real-time environment. Those fulfillment companies that seize on this as an opportunity are likely to prosper. Those that resist are setting themselves up for failure.

None of these changes will reduce the need for effective fundamental fulfillment processing. We may see a continued decline in mail transaction volumes offset by an increase in internet based transactions. Similarly, telephone customer service call volumes could decline with a corresponding increase in on-line customer service volumes. In at least one case, more than 50% of customer service transactions are now on-line. As electronic products increase in volume, with almost all of their orders coming in electronically, the trend toward electronic transactions will accelerate.

Real-time credit card processing will become more common while direct billing could decline. The percentage of credit card purchases will increase.

With respect to industry stability, this is much harder to forecast. The three large vendors all appear to be financially healthy, although Kable Fulfillment Services reported a loss in their most recent fiscal quarter.

As part of the privately owned Hearst Corporation, CDS would appear to be completely secure and stable. Hearst rarely sells companies, so an ownership change is highly unlikely, especially a company that is tightly tied to their core business. Through Hearst, CDS has large financial resources to draw on. They have been and should continue to be solid over any foreseeable future timeframe.

CDS may not be likely to expand their business via acquisitions. With a dominant market share, they could be at risk of anti-trust questions if they acquire within the fulfillment industry. Non-fulfillment and foreign companies, however, could certainly be candidates.

Kable is the largest business unit of its parent company, Amrep Corporation. As a public company, Amrep, and because of its dominance within Amrep, Kable could be subject to the pressures faced by many public companies for short term earnings. Amrep has completed the acquisition of four fulfillment companies over the past years starting with Publishers Aide and FCA in the 1990's followed by EDS in 2003 and Palm Coast Data in 2007. The integration issues they face, including the carryovers from prior acquisitions, could have an impact on near term performance. Once they get past this transitional period, however, they are likely to resume their programs of innovation and diversification that characterized their past, especially at Palm Coast Data.

TCS, as part of Time, could be affected by the future of the parent company, which has been the subject of much speculation and rumors recently. The TCS history as an in-house supplier for the largest magazine publishing company in the U.S. certainly gives it the credentials to continue to be a major long term player in the industry. They are working on growth and diversification plans that involve: market penetration in the core subscription fulfillment business; diversification through extension of core skills to expanded markets; and the "spin off" or "bundling" of services to create new products. They seem intent on these efforts and could soon be a force to be reckoned with in the industry.

It's very difficult to speculate about the future of the smaller companies. If the trend toward industry consolidation continues, one or more of them could be candidates for merger or acquisition. It seems likely, however, that they will face the need to modify their businesses to meet the changing requirements of the media industry. Pooling the needed investments over a larger base could provide some incentive for further consolidation.

Steve Strickman is president of SES & Company, a consulting company with many major publishing clients. He was the founder of CDS where he was president and chairman for 16 years. He has also been president of Palm Coast Data and Chairman of the Executive Committee of Kable Fulfillment Services. He has a masters degree from New York University and served on the visiting faculty of Stevens Institute of Technology.

Thursday, November 8, 2007

The industry is once again sending mixed signals with its circ level data. Insight is needed to see beyond the obvious numbers to the underlying trends.

In the first half of 2007 the audited paid circulation of consumer magazines continued its slow, but steady decline. The industry's paid and verified circulation fell 1.2 percent-from 279.5 to 276.2 million. This was not a large decrease, but it was welcome news for an industry that remains in a bloated state of over-circulation.

What's Causing Circ Level Reductions?

As always, the industry transmitted a set of mixed signals. We'll go below the surface to provide a data based analysis that will, hopefully, clear up some of those circ related ambiguities. Our research will show a declining universe of audited consumer magazines, reveal the breadth of both the circ level increase/decrease trends, put in perspective the circ level management impact of large publishing companies and finally take a closer look at the circ effect precipitated by changing verified and sponsored circ usage trends.

Newsstand Contribution to Circ Level

Newsstand to subscription circ ratio is a good, if somewhat crude, guide for measuring the extent of the industry's over-circulated condition.

In the second half of 2006 the industry was treated to a rare occurrence-an unexpectedly higher newsstand contribution to total circulation ratio. But the results from the first half of the year represent a return to reality. In this period, the declining newsstand circ contribution trend resumed its inexorably downward path.

The newsstand circ level declined to 47.4 million and the newsstand to subscription ratio fell to 17.2 percent-another historic low. In the year 2000, the newsstand circulation ratio stood at 20.8 percent. The persistent downward spiral of the newsstand to subscription circ ratio is a fairly good indicator that the paid consumer magazine business remains in an over-circulated condition.

Number of Audited Titles Continues to Fall

The number of audited paid consumer magazines in the first half of 2007 declined to 562-down from 579 a year ago, 592 two years ago and 645 in the first half of 2000. In the last seven years, the number of audited paid consumer titles has fallen nearly 13 percent.

It should be noted, however, that 90 audited publications (reporting 122 million paid/verified circ) with primarily "association" and/or sponsored circ have not been included in this analysis. Also not included in this review are publications with less than 5,000 paid/verified circ and those titles with primarily foreign circ.

During the first half of 2007, a record total of 44 titles discontinued publication or ceased being audited. There were seven principle casualties (more than 400,000 circ) in this group. Those titles and the paid circ they reported the year previous include: Teen People (1,456,000), FHM (1,251,000), Disney Adventures (1,181,000), Jane (706,000), Nick, Jr. (642,000), Elle Girl (513,000) and Kids: Fun Stuff to Do Together (435,000).

The combined circ of these seven titles was 6.2 million, which accounts for a significant portion of the 8.8 million circ decline attributed to all 44 discontinued publications.

On the plus side, there were 27 publications added to the auditing ranks in the last year. The largest circ contributors were: Ok! Weekly (809,000), Cooking with Paula Deen (766,000), Figure (533,000), Cookie (385,000), Siempre Mujer (381,000) and Diabetic Living (370,000). The combined circulation of the new titles was 5.7 million.

The circulation contribution from the new titles was substantial, but they fell 3.1 million short of balancing the circulation loses attributed to departing publications.

Circ Level Adjustments Less Severe

The pace of circ level reductions decelerated in the first half of 2007. There were 97 publications whose circ was decreased by 5 percent or more, compared to 126 a year ago and 146 two years prior. The frequency of circ level increases also slowed-only 74 publications, down from 89 a year ago, had circ level increases of 5 percent or more.

There were 22 titles that reported circ level decreases of 50,000 or more. These included six titles reporting circ level reductions of 150,000 or more. This group was headed by Time's massive 700,000 decrease and TV Guide's 453,000 reduction. Also included were Sunset (-243,000), Mary Engelbreit's Home Companion (-172,000), Home (-155,000) and Playboy (-151,000). In total these 22 publications reported circ level reductions of 3.1 million.

Counter balancing the level reductions were 28 titles that reported paid/verified circ levels that were higher by more than 50,000. This group included extraordinarily large increases from Everyday with Rachael Ray (+476,000), Cooking with Paula Deen (+372,000) and Women's Health (+268,000). This group of publications accounted for an aggregate circ level increase of 3.3 million.

The increases/decreases from publications with more than a 50,000 circ change nearly balanced one another.

Major Companies' Effect on Industry Circ Levels

The four leading circulation companies-Time, Inc, Meredith, Hearst and Conde Nast-accounted for 39 percent of the audited circulation of consumer magazines in the first half of 2007. Over the past decade, these four companies have aggressively pursued circulation level advances, carefully protecting their market positions.

From the year 2000 through first half of 2006, the combined circ level of these companies grew by 19 million (18 percent) and their share of a shrinking circ level market grew from 31 to 41 percent. Then in the second half of last year, Time, Inc reversed course. It sold 13 audited publications (titles with more than 7 million combined circ) to Bonnier and modified its aggressive circ level practices.

Time, Inc remains the industry's circulation leader, with slightly more than 34 million circ. But its aggregate level is now much closer to the three other major circulation leaders-Meredith (26.7 million), Hearst (24.1 million) and Conde Nast (22.0 million).

A closer inspection of the circ level practices of the industry's circ leaders (below) reveals the extent of those differences. But, surprisingly, it doesn't appear to be having a significant aggregate affect on the industry's circ level.

1. Time, Inc - It divested publications with more than 7 million circ, discontinued publication of Teen People (1.4 million circ) and announced the closing of Business 2.0 (550,000 circ). It has also displayed new circ level caution with its mature titles. It made deep (greater than 15 percent) circ level cuts on both Time and Sunset. Circulation reduction is a strange occurrence for a company previously known for its relentless pursuit of circ level growth and its huge appetite for protecting market position.

2. Meredith - It quietly brought three new publications to the auditing ranks in the last year-Figure (533,000), Siempre Mujer (381,000) and Diabetic Living (370,000). It boosted the circ of More (up 99,000) and venerable BH&G (up 61,000). But it also displayed circ caution-it ceased auditing Renovation Style, reduced the number of audited BH&G specials, discontinued Child and lowered Family Circle's circ level. Its approach to circ level management might be described as cautiously aggressive.

3. Hearst - It demonstrated very little interest in circ level reductions. In the aggregate, it increased its circ level 2.6 percent. This included increasing the level of O, The Oprah Magazine (up 100,000) and Good Housekeeping (+131,000), publications whose levels had been reduced in recent years. It is still clearly pressing the circulation pedal to the medal.

4. Conde Nast- In the first half of 2007 it continued to be aggressive in its circ practices, growing its circ level by 2.9 percent, even though it discontinued Jane, a publication that reported 706,000 circ the year previous. It increased the circ of Domino, GQ, H&G and Wired by 50,000 or more and launched Cookie-a publication that reported 385,000 circ. In the last seven years, it has exhibited the largest circ level growth (21 percent) of any major publishing company.

5. Reader's Digest- Its circ level increased 2.9 percent on the strength of the phenomenal growth of Every Day with Rachael Ray. However, its announced intention to lower the circ of Reader's Digest by 2 million will reduce its overall circ in 2008 to a level that will be less than half that of the four market leaders.

6. Hachette and No. 8. Enthusiast Media- Of the market leaders, these two companies have demonstrated the greatest propensity for reducing circ levels. The most vigorous circ level reduction company has been Enthusiast Media. After several years of divestitures, it still publishes an extraordinarily large number of audited special interest publications, plus two Soap Opera titles.

In the first half of 2007 it reduced the circ level on 38 of its 45 special interest titles, resulting in an aggregate circ level reduction of 4.9 percent. Hachette has trimmed its portfolio of audited publications, selling Showboats International and ceasing publication of Elle Girl and Premiere. It also made significant circ level reductions in the first half of this year on Home, Sound & Vision, Metropolitan Home, Flying and Woman's Day. Overall, it reduced its paid/verified circ level 8.3 percent in the last year.

7. Bonnier (previously World Publications)- Late last year it made a dramatic entrance on to the precarious "large circulation" stage with its aforementioned acquisition of Time, Inc titles. Welcome to the big leagues! Its combined circ level of 9.1 million now places it in elite company. We don't yet know much about its circ level strategy, but we know the industry will be closely watching its circulation actions in the year ahead.

9. National Geographic- It is the odd ball among major consumer magazine publishers. It is a company with a large commitment to "association" circulation (92 percent of the circ for its name sake publication), yet it publishes four other audited consumer titles (combined paid/verified circ of 2.7 million) that don't rely on "association" circulation sources.

It is kind of a hybrid consumer magazine publishing company. But the large scale of its circulation operation insures its significant industry influence. In recent years it has trimmed the circ of its flagship publication, National Geographic. But it has maintained or grown the circ of its other four audited publications.

10. Rodale- In a stealth manner, this company has consistently grown its circulation over the last seven years. Even though it sold Backpacker (circ 354,000), its overall circ level still grew 4.1 percent during the period-led by the dynamic growth of Women's Health (up 268,000) and Prevention (up 94,000). Additionally it resurrected Organic Gardening, a publication that had dropped from the auditing ranks in 2004.

Among the industry's circ leaders, an interesting circ strategy dynamic has evolved. The group appears to be equally divided among growth and reduction proponents. On the growth side are Meredith, Hearst, Conde Nast and Rodale. Balancing that circ level assertiveness are the reduction practitioners-Time, Inc, Reader's Digest, Hachette and Enthusiast Media. In neutral positions are National Geographic and unknown Bonnier.

The Impact of Verified Circ and ABC Par. 6 SourcesIt doesn't appear as if the advent of verified circ and the accompanying increase in circ source transparency (ABC Statement paragraph 6) have had any appreciable impact on total paid/verified circ levels. But there have been some significant changes in paragraph 6 source distribution.

The amount of verified circ employed by audited consumer magazines in the first half of this year was 10.8 million-3.9 percent of total paid/verified circ. This is almost exactly the amount of verified circ used (10.7 million) in the previous year. But here's the change: it's down substantially from the amount of verified circ employed (12.4 million) in the second half of last year.

What's caused this fluctuation in verified circ usage?It can only be explained by reviewing verified circ usage in context with all other reported ABC paragraph 6 sources. In order to facilitate this comparison, I've compiled paragraph 6 data for the 22 circulation companies with more than 2 million paid/verified consumer magazine circ (see the attached chart). This data is a representative industry sample, accounting for 74 percent of the industry's total paid/verified circ.

The data reveals an interesting phenomenon. It confirms the verified circ slide (down 16 percent), but curiously it shows that the rise in other paragraph 6 sources-paid sponsored, partnership, loyalty and combination circ -balanced the verified circ decline. The net effect is that the total use of paragraph 6 circ sources in the last two six month periods is nearly equal, with 13.0 percent of total paid/verified circ in the first half of 2007 and 12.8 percent during the second half of 2006.

The sharp increase in verified circ in the second half of last year appears to be largely a result of a change in ABC regulations regarding partnership non-deductible circ. What happened is that partnership non-deductible circ, previously reported as partnership circ in paragraph 6, was re-designated (and reported) as verified circ in the second half of 2006.

However, this change alone does not reveal the entire paragraph 6 source distribution story. In the first half of this year, partnership circ usage sharply rebounded, reporting a 28 percent (1.1 million circ) increase over the previous six month period. It should be noted that "paid sponsored" circ usage also increased, although not as dramatically as partnership circ.

Some of the increases in partnership and paid sponsored circ in the first half of the year can be attributed to publishers anticipating the effect of yet another ABC rule change. This one will take effect with the first half 2008 ABC statements and involves the paid sponsored source.

In short, the consequences of this audit bureau change are that all paid sponsored circ, designated as "public place," will be reported as verified circ. The relatively small portion of paid sponsored circ that is "individually addressed" will remain (for the time being) classified as paid sponsored circ.

The sponsored circ redefinition change could cause another temporary spike in verified circ, similar to the one precipitated by the partnership regulation change. However, the significant increase in other paragraph 6 circ source use in the first half of this year is an indicator that publishers will try to avoid major verified circ increases by replacing a majority of any paid sponsored (public place) circ losses with circ from other paid paragraph 6 sources.

CONCLUSION: What's Really Precipitating the Modest Industry Circ Level Declines?The industry's aggregate circ level may be bloated, but publishers don't seem overly concerned. They have, more or less, disregarded the warnings of a drooping newsstand to subscription circ ratio. They appear to be balanced in terms of increasing or decreasing circulation.

The differing circ strategies of the major publishers are helping sustain relatively stable industry circ levels. Even the prospect of explaining verified circ to advertisers hasn't diverted publishers from their circ level increase persistence. We'll have to see if the recent redefinition of the paid sponsored circ will have an adverse effect on circ levels.

The only thing that seems to be having a slimming impact on industry circ levels is anthropological in nature. The consumer magazine environment is over-populated-it can no longer adequately support as many titles as it did ten years ago. Of course the industry has always been governed by Darwinian survival rules-the weak succumb, the strong continue.

The difference today is that the weak are being replaced on less than a one for one basis. The decline in audited publications (down 13 percent in the last seven years) accounts for the majority of the industry's circ level decline.

But, interestingly, the average circ of the surviving titles has grown from 467,000 seven years ago to 491,000 in the first half of 2007. This five percent increase in average circ per audited publication partially offsets the level reduction effect of having fewer audited publications.

The Darwinian effect is partially helping relieve an over-circulated industry. However, it's going to require more proactive individual publication circ level reduction efforts if the industry is to expeditiously reach circulation level equilibrium.

About Me

a veteran of the printing/publishing industry since 1970, Bob Sacks was always an innovator. Even back in the 70s he followed a more creative path than usual. He started his career where some people end -- with the founding of his own weekly newspaper in the metro New York area.
After several years in the alternative press publishing newspapers in New York and Tucson, Az., he went on to become one of the founding fathers of High Times Magazine.
Since then Bob has held positions that include Publisher, Editor, Freelance Writer, Director of Manufacturing and Distribution, Senior Sales Manager, Circulator, Chief of Operations, Pressman, Cameraman, Lecturer, and Developer of web site companies.
Bob’s resume lists directorships at such prestigious companies as McCall's, Time Inc, New York Times Magazine Group, International Paper, Ziff-Davis, CMP, and Bill Communications (VNU).